Q & A

By: Joe Catalano
Newsday
October 26, 2001

Q.
I am getting divorced after 43 years of marriage. The house we own was bought 38 years ago. If I acquire the property in the settlement and later sell, how do I avoid the capital-gains tax? I know that a married couple can keep $500,000 in profits, but a single person only gets $250,000.

A.
One option is to sell before finalizing the divorce, said Elena Karabatos, a partner in the Mineola law firm Schlissel, Ostrow, Karabatos, Poepplein & Taub. The two of you then qualify for the $500,000 exclusion.

If you want to retain the house and sell in the future, do some negotiating during your divorce settlement, Karabatos said. Leave your husband's name on the deed. When the house is later sold, he gets half the proceeds and the $250,000 exclusion. In return, ask for an asset equaling that amount, such as $250,000 in cash, she said. The agreement could also let you live there exclusively or keep all the sale proceeds - whatever you negotiate while protecting the profit.

Another option is to divorce with each getting half the house and your getting an additional sum of cash or assets, said Stephen M. Breitstone, a partner and tax attorney with the Mineola law firm Meltzer, Lippe, Goldstein & Schlissel. After the divorce is finalized, your ex-husband sells you his half of the house. You use the extra cash or assets you received to purchase his share. He keeps up to $250,000 in profits from his sale to you.

Your basis or cost becomes half the home's original purchase price, plus half of the home's value on the day your husband sells his half to you, Breitstone said. When you sell, you only get a $250,000 exclusion as a single. But there is less profit to protect because your cost basis has increased, he said.

One caveat: The sale of your husband's half must be independent of the divorce agreement to qualify under tax guidelines, Breitstone said.